9911796707
TMI Blog2019 (6) TMI 1261X X X X Extracts X X X X X X X X Extracts X X X X ..... 143(3). In such circumstances, it is presumed that AO has examined the entitlement of deduction u/s 10A by the assessee in all angles. Withdrawal of the deduction allowed u/s 10A based on the assessment order relating to the assessment year 2007-08 is without application of mind and nothing but change of opinion, which tantamounts to review and the same is not permissible to initiate the proceedings u/s 147/148 of the Act. This Court is of the opinion that there was no material on record before the Assessing Authority to establish failure on the part of the assessee to disclose truly and fully the relevant material while passing the original assessment order u/s 143(3) and as such the respondent authority had no jurisdiction to invoke Section 147 and 148 of the Act for the assessment years in question. - Writ petitions are allowed. X X X X Extracts X X X X X X X X Extracts X X X X ..... A was in appeal, is against the third proviso to Section147 and is without jurisdiction. The re-assessment proceedings are time barred as the petitioner has not failed to disclose any material facts for the assessment and the reasons recorded for issuing notice under Section 148 were furnished to the petitioner only after the expiry of extended period of six years. 6. Learned counsel Sri.T.Suryanarayana appearing for the petitioner has raised four grounds, namely, 1. All material facts were fully and truly disclosed by the assessee. Initiation of proceedings by the Assessing Officer under Section 147/148 of the Act is without jurisdiction. 2. The re-assessment notices issued under Section 147 r/w 148 of the Act are barred by limitation and it is only change of opinion of the Assessing Officer. 3. Reasons recorded by the Assessing Officer indicates that there was no independent application of mind but it was only a borrowed satisfaction based on the assessment order of the year 2007-2008 passed under Section 143(3) of the Act. 4. The issues relating to Section 10-A were pending before the Appellate Forum and as such re-assessment proceedings initiated under Section 147 r/w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 10-A and 10-AA of the Act. The petitioner's company had claimed the revenue receipt from such DTM as software development activity and deductions were allowed under Section 10-A as claimed which being wrongly allowed, the same called for initiation of reassessment proceedings. It was argued that the subject mater of the appeal which was pending before this Court was on a different issue, not related to the issue on hand. The Assessing Officer being of clear satisfaction that there is reason to believe the escapement of tax during the relevant assessment years, proceeded with the re-assessment proceedings. Preliminary order was passed rejecting the objections. The assessment order passed for the assessment year 2007-2008 disallowing the deductions under Section 10-A for this DTM activities has been confirmed by the first Appellate Authority. Thus, it was argued that the writ petition is not maintainable. 10. Both the learned counsel have placed reliance on host of judgments in their support. 11. I have carefully considered the rival submissions of the learned counsel appearing for the parties and perused the material on record. 12. It is the contention of the petitioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are deputed abroad, b) Company's contribution to social security and taxes on the maintenance allowances paid to employees, c) Medical insurance costs of the employees, d) Expenditure on travel abroad, e) Data communication costs, f) Software for own use that are required for specific projects, g) Other expenses. b] Expenditure incurred on sales and marketing general administrative activities abroad: In order to support and market the software development projects, it is necessary for the company to incur expenditure on administrative and sales and marketing activities. These activities are critical for providing support to the execution of software development projects and maintaining the competitive edge of the company in a highly competitive global market environment. The major heads of expenses under this category are as follows: a) Maintenance allowances paid to employees in support and sales functions, b) Rentals, maintenance and related costs of offices maintained abroad for support and sales activities, c) Expenditure on traveling and conveyance etc abroad by these functions, d) Other expenses." 14. The Annual Report discloses the Revenue by locat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7,75,87,889/-. 3. Provision for post sale customer support ₹ 29,87,075/-. 4. Recomputation of deduction u/s 10A a) Communication expenses incurred in connection with delivery of software not reduced from total turnover. b) Reduction of expenses in foreign currency and providing technical services outside India from export turnover - ₹ 1041,17,04,887/. c) Reduction of bad debts written off amounting to ₹ 14,16,04,817/- from export turnover." "3. During the course of scrutiny proceedings conducted for A.Y. 2007-08, as visit was carried out at the head office of Infosys Technology Limited on 1.12.2010. Various information including a large number of Master Service Agreements, Work Contracts/Scope of works, Invoices and other details related to the deduction claimed u/s 10A and 10AA of the Income Tax Act were called for. On account of detailed fact finding during the course of this scrutiny proceedings for A.Y. 2007-08, the following additions/disallowances to the returned income for A.Y. 2007-08, were made a) It is noticed that the assessee company is rendering a large body of work onshore abroad related to software developmental activities. However, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... noticed with respect of the MSAs, Work orders, SOWs and Invoices called for and seen during the course of assessment proceedings for A.Y. 2007-08. A good number of MSAs executed by the assessee had been entered into from 1.4.2000 to 31.3.2003. The details of revenues declared by the assessee onsite and offshore and the expenditure incurred by the assessee in foreign currency are as below for the assessment year 2004-05: xxx xxx As per A.Y. 2007-08, 10% of the total onsite revenues by the assessee have been held to be out of deputation of technical man power receipts. Similarly 20% of the total onsite receipts of the assessee have been held to be on account of onshore revenues not related to the STP undertakings in India. As per this preliminary estimation and considering similar percentages of DTM activity and onshore revenue activities for the year, more than ₹ 224 crores of software services revenue claimed by the assessee for the year is not eligible for deduction u/s 10A of the I.T. Act. None of these facts of DTM activity conducted, onshore revenues earned without any link to the STP undertakings in India and capital expenditure for building constructions claime ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d four years are that [i] the assessing officer has reason to believe that the income chargeable to tax has escaped assessment [ii] no full and true disclosure of the material facts at the time of original assessment was made by the assessee. 19. To confer jurisdiction under this section in respect of assessment beyond the period of four years but from the end of the relevant assessment year, the pre-requisite condition is that the Assessing officer must have 'reason to believe' that any income chargeable to tax has escaped assessment 20. The third proviso contemplates that the Assessing Officer is conferred with a jurisdiction to assess or reassess such income, other than the income involving matters which are the subject matter of any appeal, reference or revision, which is chargeable to tax and has escaped assessment. 21. The notice issued by the Assessing Officer under Section 148 of the Act reads thus: "Notice under Section 148 of the Income-tax Tax 1961 To, M/s. Infosys Technologies Ltd Electronics City, Hosur Road., Bangalore-560100. Whereas I have reason to believe that your income chargeable to tax for the assessment year 2004-05 has escaped assessment with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stence of the jurisdictional condition precedent to the exercise of the power to reopen an assessment beyond a period of four years of the expiry of the relevant assessment year." 23. Thus, it can be held that the notice issued under Section 148 of the Act does not fulfil the jurisdictional condition precedent stipulated by the proviso to section 147 of the Act in as much as the failure on the part of the assessee to fully and truly disclose all material facts has resulted in escapement of assessment of the income chargeable to tax. 24. As aforesaid, it is the contention of the petitioner that all the material facts were fully and truly disclosed in terms of the notes referred to above and the annual report of the company wherein income from software services and products is shown as overseas and domestic as well as revenues by location onsite and offshore. These aspects were considered by the assessing officer at the time of original assessment. The Assessing Officer based on the material facts has concluded the assessments allowing the deduction under Section 10-A of the Act. Subsequently on the garb of assessment order passed for the assessment year treating the onsite revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hange for providing technical services outside India. The Assessing Officer had examined the claim of expenditure incurred in foreign currency for providing technical services by allocating the sum between the five STP units in the ratio of export sales. Certain queries were raised and considering the detail reply given by the assessee, the issue was thoroughly addressed, considered and the plea of the assessee came to be accepted. In that view of the matter, it cannot be construed that there was either nondisclosure by the assessee or the Assessing Officer had obtained material subsequent to framing of the assessment order so as to arrive at a conclusion that there was escapement of income from tax. In such circumstances it was held that, the Tribunal was justified in arriving at a conclusion that the re-opening of assessment was 'change of opinion' and the issue regarding eligibility of the income derived from rendering technical services abroad to be eligible for deduction under Section 10-A or not, had already been considered by the Assessing Officer in the assessment concluded under Section 143 (3) of the Act. 28. The Cognate Bench of this Court in the case of M/s. Kotarki Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unit and the balance amount of ₹ 2,66,47,554/- relates to 80HHE units. The assessee company has furnished a break-up of the expenditure of ₹ 1923,96,68,110/- which is enclosed to this order as Annexure A. As per the details furnished, an amount of ₹ 872,42,20,529/- is in relation to marketing expenses and other expenses. The balance of ₹ 1051,54,47,581/- [including telecommunication charges] was further bifurcated as under: Travel Expenses - 41,39,49,711 Professional Charges - 2,42,98,265 Data Communication Charges - 10,37,42,694 Employee related - 997,34,56911 Total 1051,54,47,581 At the same time, the assessee company could not categorize/quantify the above sum as per the definition of the Export Turnover …………" 30. In the case of Commissioner of Income Tax, Gujarat Vs. Bhanji Lavji (1971) 79 ITR 583 (S.C), the Hon'ble Apex Court while considering Section 34[1] [a] of the Income Tax Act, 1922, observed that it is not for the assessee to satisfy the Income-tax Officer that there was no concealment with regard to any question; it is for the Income-tax Officer, if that issue is raised, to establish that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the opinion of the auditors for which the Income-tax Officers had called upon the assessee, were all known to the Income-tax Officers at the time of making the original assessments. In spite of the same, the Income-tax Officer chose to assess the assessee in the manner he did." 32. In the case of Income Tax Officer, I Ward, Distt. VI, Calcutta & others Vs. Lakhmani Mewal Das (1976) 103 ITR 437 (S.C.), the Hon'ble Apex Court has observed thus: "As stated earlier, the reasons for the formation of the belief must have a rational connection with or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the Income-tax Officer and the formation of his belief that there has been escapement of the income of the assessee from assessment in the particular year because of his failure to disclose fully and truly all material facts. It is no doubt true that the court cannot go into the sufficiency or adequacy of the material and substitute its own opinion for that of the Income-tax Officer on the point as to whether action should be initiated for reopening assessment. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ission to disclose fully and truly all material facts." 33. In the case of Commissioner of Income Tax vs. Kelvinator of India Ltd., (2010) 320 ITR 561 (SC), the Hon'ble Supreme Court held as under:- "6. On going through the changes, quoted above, made to Section 147 of the Act, we find that, prior to the Direct Tax Laws (Amendment) Act, 1987, reopening could be done under the above two conditions and fulfillment of the said conditions alone conferred jurisdiction on the Assessing Officer to make a back assessment, but in Section 147 of the Act (with effect from 1st April 1989), they are given a go-by and only one condition has remained, viz., that where the Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to reopen the assessment. Therefore, post-1st April 1989, power to reopen is much wider. However, one needs to give a schematic interpretation to the words "reason to believe" failing which, we are afraid, Section 147 would give arbitrary powers to the Assessing Officer to reopen assessments on the basis of "mere change of opinion", which cannot be per se reason to reopen. We must also keep in mind the conceptual difference betwee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order as to costs. 34. In the case of Assistant Commissioner of Income Tax V/s. Rajesh Jhaveri Stock Brokers [P] Ltd. [2007] 291 ITR 500 [SC], the Hon'ble Apex Court has held thus: "Sec. 147 authorises and permits the AO to assess or reassess income chargeable to tax if he has reason to believe that income for any assessment year has escaped assessment. The word "reason" in the phrase "reason to believe" would mean cause or justification. If the AO has cause or justification to know or suppose that income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that the AO should have finally ascertained the fact by legal evidence or conclusion. The scope and effect of s. 147 as substituted w.e., 1st April, 1989, as also ss. 148 to 152 are substantially different from the provisions as they stood prior to such substitution. Under the old provisions of s. 147, separate cls. [a] and [b] laid down the circumstances under which income escaping assessment for the past assessment years could be assessed or reassessed. To confer jurisdiction under s. 147[a] two conditions were r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... culminating into an assessment order escaping the income to assessment. Presumption can be raised with respect to an assessment order passed in terms of Section 143[3] that such an order has been passed on application of mind which is well known presumption in terms of Section 114[e] of the Indian Evidence Act, 1872. Merely if the assessment order is silent or does not record the reasons, would not lead to the conclusion of non application of mind by the AO. On the contrary, it is a presumption that the AO has applied his mind to all the material facts available at the time of passing of the assessment order if it could be inferred impliedly from the order or the existing circumstances." 37. It is apt to refer to Income Tax Officer Ward No.16[2] V/s. M/s. Tech Span India Private Ltd., & Another [2018] 302 CTR 0074, wherein the Hon'ble Apex Court has held thus: "9] Section 147 of the IT Act does not allow the re-assessment of an income merely because of the fact that the assessing officer has a change of opinion with regard to the interpretation of law differently on the facts that were well within his knowledge even at the time of assessment. Doing so would have the effect o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nces which were already in his knowledge even during the original assessment proceedings." 38. It is beneficial to refer to the CBDT circular dated 17.01.2013 issued by the Government of India, Ministry of Finance, Department of Revenue wherein, it is clarified thus: "[b] It has also been brought to notice that it is a common practice in the software industry to depute Technical Manpower abroad [at the client's place] for software development activities [like upgradation, testing, maintenance, modification, troubleshooting etc.,], which often require frequent interaction with the clients located outside India. Due to the peculiar nature of software development work, it has been suggested that such deputation of Technical Manpower abroad should not be considered detrimental to the benefits of the exemption under Sections 10A, 10AA and 10B merely because such activities are rendered outside the eligible units/undertakings. The matter has been examined. Explanation 3 to sections 10A and 10B and Explanation 2 to section 10AA clearly declare that profits and gains derived from 'services for development of software' outside India would also be deemed as profits derived from export. ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
